How blockchain technology is fixing payments today and what comes next

What's wrong with cross-border payments today?

It’s no secret that the cross-border payments landscape using traditional rails is fraught with fees, hurdles and delay. Individual senders incur outsized fees for the billions of dollars sent in personal remittances every year. Global businesses choose between bearing an FX cost or passing that cost onto their customers. And all of those involved must wait days or weeks to complete transactions. The bottom line: sending money via traditional rails is far from a borderless experience.

Part of the problem is that systems are not interoperable. To send money to different corners of the world without blockchain, a whole patchwork has been haphazardly knitted together over the decades to achieve some semblance of financial interoperability between financial institutions, correspondent banks and money transfer operators along the value chain. Connecting these disparate systems, particularly in underserved markets, where the local currency is not globally traded, has created friction that results in long delays and high fees at each link of this chain.

Just last year, the G20 made enhancing cross-border payments a priority, citing the benefits a faster, cheaper, more transparent system would deliver for citizens and economies worldwide, and increasingly, global policymakers recognize that blockchain technology can solve the problem posed by outdated financial infrastructure.

But the solution isn’t just within sight — the solution is here. Blockchain technology is delivering on its promise with seamless cross-border payments today.

A global public network

Blockchain technology is showing that we can connect financial infrastructure so that no matter where you are in the world, systems and forms of value can interoperate with each other.

Stellar, a global, public blockchain that is built for interoperability and to further financial access and inclusion, has a network of more than 20 anchors around the world who are integral parts of connecting global financial systems. These anchors are regulated financial institutions, money service businesses, or fintech companies that issue 1:1 backed fiat tokens (also known as stablecoins) and/or provide a fiat on/off-ramp. The goal is to open markets to new remittance and payments corridors, like between Europe and Nigeria, Africa’s largest Sub-Saharan remittance market.

For example, Cowrie Integrated Systems, a financial technology company with headquarters in the United Kingdom and offices in Nigeria, provides value-added services over electronic payment networks. Given recent guidance out of the Central Bank of Nigeria, Cowrie designed a payment channel to leverage USDC, one of the world’s leading digital dollar stablecoins, as a bridge currency to help businesses reduce the friction of sending payments to and from Europe.

Working with Tempo, an electronic payment institution based in France and the issuer of EURT, a euro stablecoin also pegged 1:1 to fiat reserves, they are developing a bi-directional channel for customers to redeem and trade these tokens right away. This resulted in savings in terms of costs and time and showed the power of connecting global financial systems so they are easily interoperable, efficient, affordable, and most importantly, accessible.

Openness, innovation and interoperability

Once we recognize that the blockchain future we’ve all been dreaming about is actually here, right now, we have to ask ourselves whether we are creating long-term solutions

Open networks allow innovation from the many rather than the few. Open networks ensure that anyone can build upon, improve and challenge the technology and push the market to consider the next idea. Open networks promise interoperability and allow for continual ideation and progression. If we were to start building this technology in a silo, on closed networks that can’t work together, we would risk putting ourselves right back where we started. By working together in the open to connect traditional financial rails with digital ones, we can reap the benefits and work through shared challenges.

Making blockchain mainstream

Confidence in this technology, especially for digital currencies, is growing across the board. Governments are accelerating their work on Central Bank Digital Currencies. Businesses are building and investing, with the vast majority of global executives surveyed by Deloitte last year saying they believe digital assets will be important to their industries within the next three years.

But the benefits of innovation, especially in the financial sector, cannot be gained at the expense of additional risk to consumers. Central banks and regulators, entrusted with the duty to protect consumers, draft and enforce regulations guided by that lofty responsibility. But, as the Tempo-Cowrie example demonstrates, deployed correctly, blockchain technology can be leveraged to benefit consumers without sacrificing oversight, accountability or regulation.

This is why it is all the more important for us to demonstrate to stakeholders what a difference this technology can make for consumers, citizens and businesses, boosting local and national economies - and how the technology can be subject to regulatory oversight. This is why it is critical for the private sector to engage with governments to ensure that new regulations balance the need for new and improved financial rails with the need to guard against innovations that empower illicit actors. The desire to get this right is shared by all stakeholders and it's by working together that we will achieve that balance.

Blockchain is real and actionable today, ready to tackle not only cross-border payments but many of the most meaningful, impactful financial use cases for citizens, consumers, governments and businesses. Now, with a concerted public-private partnership, we can take it mainstream.